Industry Study - Retread Tire Industry

Introduction

The retread tire market is extremely competitive market due to the constant technological improvements in the industry and the ever changing Federal and local guidelines they must follow. It is extremely easy to enter the retread market, but it is hard to stay competitive in this market. They keep up to date on technological advances in order to stay current in their industry, which is quite expensive. There are new industry standards that are being set using the Yokohama RY617 as the benchmark for this new program which require new equipment to meet these standards (Truck News, 2012). There are even requirements as to how the new retread tires will be labeled.

Main Industry: Tire Retreading

According to the Tire Retread & Repair Information Bureau (TRIB) tire retreading is the process in which worn tires (called casings) are inspected and only the sound casings are chosen to get a new tread after careful inspection. After selecting the appropriate casings the remainder of the worn tread is removed, by buffing the old tread away, and a new tread is bonded to the casing which is very much like the process used to manufacture new tires. The retreaders use processing techniques including the use of heat, time and pressure to retread the casings (TRIB website, 2012).

According to government statistics, there were 1,845 companies in this category in 1992, down from 1,930 in 1987. In 1997, there were 632 companies, operating 754 establishments. Their shipments were valued at $983 million.

PORTERS FIVE FORCES
Rivalry in the industry

There is a lot of competition in the tire retread industry throughout the United States. Shrader’s main competition is BF Goodrich, Michellin, and Goodyear Tire. The competition includes not only franchises but smaller stores as well. It is hard to distinguish within the customer base, so cost of competition is high.

Threat of Substitutes

There are several potential substitutes, from cheaper retread companies to new cheap tires like those being produced in China. These cheaper substitutes can raise the cost of competition as companies like Shrader must spend more on customer service and higher quality retread tires to so they can distinguish themselves from their competition within the customer base.

Threat of New Entrants

This is a major threat. Anyone could set up a shop with simple tools and some basic knowledge which is why it is important to create brand loyalty through other methods like strong customer service and quality products to retain customer loyalty. In Toledo there are operations like Poor Man’s tire on the East Side of Toledo who sell retread tires at prices as low as $25 a tire for cars, and $45 for larger vehicles like Jeep Cherokee’s.

Powerful Suppliers

Suppliers of tires are very powerful in this industry. Some of the biggest suppliers include BF Goodrich, Michellin Tire, and Goodyear. Name brand is important in this industry because many people connect name brand with high quality. When you think of tire suppliers typically the larger companies are the first ones who come to mind, not the smaller companies. Even in the area where Shrader operates and offers 24 hour service and additional services like auto parts and lubricants people tend to think of the large companies first and only consider Shrader later if their needs can’t be met by the larger companies like BF Goodrich.

Powerful Customers

Customers have a lot of power in this industry because there are many suppliers for them to choose from. Therefore larger customers like Chevron who are both customers in the market and suppliers can easily negotiate to get the products and services at prices they want or they could threaten to take their business elsewhere. Chevron operates a very large fleet to move their petroleum and other products across the United States so losing them as a customer would be a big financial hit to any retread company, big or small.

Identify Competitive Dynamics/Market Structure

Competitive Dynamics

All products are somewhat dynamic but when you are dealing with large competitors like Meyers Industries, K&M Tire Inc., and The Tire Rack. One thing that set’s Shrader apart from their competitors is their ability to serve their customers in other industries like auto parts and lubricants. They use their 24 hour shops to service all of their customers needs any time of day or night, and in several different industries. There are constant technological changes, therefore in order to keep up with market demands there must be constant, intensive research. This drives up the cost of maintaining a competitive advantage, but is absolutely necessary in this industry.

Sales have increased a lot over the last 5 years since Shrader expanded into Michigan. Shipping companies depend on oil and retreading services, and as long as people need products, people will need the services Shrader supplies. From 2002 to 2007 it increased 29%. This trend should continue and sales should continue to steadily increase. The entire retreading market is also growing after a dip in sales in 2009.

Tires are in the top 5 of the biggest expenses for commercial fleets. It is important for Shrader to maintain good customer relationships to be able to service repeat customers in a proactive manner. Also, it is important to be extremely flexible for customers (i.e. 24 hour service) because their products have such a short life cycle.

Identify Top 3-5 Direct Competitors

Shrader Tire and Oil are in the commercial tire manufacturing industry, along with Hoovers and Belle Tire as the main competitors in the regional market. These three companies focus on the manufacture of oil and used tires to recycle working sets of tires for commercial delivery trucks. Some of the major competitors such as British Petroleum and Exxon control a large share of the oil prices for the country, but do not offer the diverse services for the trucking industry.

Provide Market Share on Company & Top Competitors

Main Industry: Tire Retreading

According to the statistics we found there were 1,845 companies in this category in 1992, down from 1,930 in 1987. In 1997, there were 632 companies which operated 754 establishments. Their combined shipments were valued at $983 million. The top five states, in terms of establishments, were Texas, Ohio, Pennsylvania, North Carolina, and Illinois. Shrader does business in Ohio, Michigan and most recently, Indiana. Shraders top competitors in the tire industry are Hoovers and Belle Tire.

According to Denise Koeth, the Managing Editor of the Tire Review website the retreading market is growing after a drop in sales in 2009 (Tire Review, 2010). One of the largest expenses a fleet company incurs, after the cost of trucks, labor, and fuel, are tires. Customers like Swift Delivery Co., which operates a large fleet of Semi-Truck out of 5 locations, know the importance of keeping tire costs down.

It is important for a company like Shrader to maintain a good customer relationship, and keep an open line of communication to help whenever possible when servicing Swift and other customers like them. If Shrader offers quality service, and keeps an eye out for their customer’s bottom line as well they will be sure to strengthen those bonds.

According to The Tire Retreading Information Bureau, "Because of the competitive nature of the retreading industry, [customers] can expect to see continuous improvement in quality, durability, and reliability, as the major retreading suppliers annually invest millions of dollars in research and development." (

New standards are in the process of being set for the retreading industry by the EPA, specifically regarding retreading technology. The EPA has launched a SmartWay verification program for retreading, in which they used the Yokohama RY617 as the benchmark for the program. This has created a new standard of quality that all retreading companies must meet or exceed. This creates a new standard for Shrader’s MRT plant, and it also creates issues regarding the future selection of suppliers.

One of the issues facing many of industries Shrader competes in is their ability to improve the technology used to produce and sell products and services. The technologies used in selling products via a website have really changed, especially with new mobile technologies and online sales. This is an area in which Shrader could improve their otherwise stellar service.

One of the biggest issues in the retread industry is the ability to provide quality products while still being environmentally conscious. The first thing to take into consideration is the retreading process itself, it is a green procedure. Instead of completely producing a new tire (which uses seven to eight gallons of oil) retreading tires uses less than half the oil.

Summary

Overall, Shrader has a good hold on the immediate area for the products and services they provide. They are trying to help stay green for the environment, which many people enjoy. They also are doing everything they can in order to keep the customers they have and gain new repeat customers, including having twenty four hour facilities and updating their technology as much as possible.